America divided: the politics of inequality

The economic crisis in the United States has had a profound impact on the lives of millions of its citizens. Among the most damaging is the experience of unemployment. In a country where notions of work, self-reliance, and self-improvement are fundamental to its identity, the insecurities and hardships associated with forced idleness are hard indeed to cope with.

The persistence of large-scale unemployment is a standing affront to another of America’s core ideas: that, as the country’s founding document says, all men are created equal. True, the signatories of the Declaration of Independence were here pledging fidelity to a natural-rights principle than thinking of absolute or even relative economic equality.

Still, an important element in the American public philosophy has always been the idea that the United States does offer, certainly has offered, greater economic equality, and in particular greater and more equal economic opportunity. This was the American dream.

Now, that proposition has become dubious. Many Americans question whether life will be as good for their children as it was for their parents. There is much statistical evidence to suggest that the United States is neither exceptionally equal nor exceptional in its modern record of upward social mobility.

On the basis of such evidence I myself have written that “by all statistical measures . . . the United States, in terms of income and wealth, is the most unequal country in the world. While the average income in the United States is still almost the highest in the world . . . the gap between wealth and poverty is higher than anywhere else, and is growing steadily greater” (see More Equal Than Others: America from Nixon to the New Century [Princeton University Press, 2006]).

Another book, by the American historian Peter Baldwin, has refined and amplified this argument “(see The Narcissism of Minor Differences: How America and Europe are Alike [Oxford University Press, 2009]). He uses a wealth of statistical research to show that the United States is less exceptional than either Americans or Europeans think, and that the differences in many parameters between (for example) Mississippi and Massachusetts are greater than those between Europe and America; while the differences between northern and southern Europe are similarly comparable to those between New England and the deep south. In most demographic respects, the United States lies not at an extreme of wealth or an extreme in any cultural variation, but somewhere inside the distribution of European countries in each particular respect.

A broken contract

The former United States labor secretary during the Bill Clinton presidency, Robert Reich, dissects the historical dimensions of “widening inequality” in a forensic article:

“In 1928 the richest 1 percent of Americans received 23.9 percent of the nation's total income. After that, the share going to the richest 1 percent steadily declined. New Deal reforms, followed by World War II, the GI Bill and the Great Society expanded the circle of prosperity. By the late 1970s the top 1 percent raked in only 8 to 9 percent of America's total annual income. But after that, inequality began to widen again, and income reconcentrated at the top. By 2007 the richest 1 percent were back to where they were in 1928 -- with 23.5 percent of the total” (see Robert Reich, “The Root of Economic Fragility and Political Anger”, Huffington Post, 13 July 2010).

What is important here is that Reich focuses not on the relative equality or inequality of wealth or income of American as compared with the populations of other countries, but on how a trend away from inequality, in the direction of relative equality, has been reversed. Things in this respect in America are now back where they were before the last great depression, in the 1930s.

It is a serious charge with profound political implications (“What we get from widening inequality is not only a more fragile economy but also an angrier politics.”) Since the triumph of conservative economic principles and policies, beginning in the 1980s, Reich is saying, the United States has thrown away a pearl of great price: the improvement in the condition of its citizenry that was achieved by all the efforts of the New Deal and the labour movement, the opportunity afforded by the collapse of its competitors in the second world war, and the social-democratic policies of the Truman, Kennedy and Johnson administrations.

Until the financial crisis of 2008, most Americans, if they noticed the growth of inequality at all, probably shrugged. Inequality, many believed, was the price paid for the dynamism of American industry and research, for the brilliant achievements of American research, and for the supposedly greater opportunity Americans enjoy of becoming, in the unforgettable phrase of Peter Mandelson, “filthy rich”.

The economic events of 2008-10 ought to have swept such complacency away (see “The week that democracy won”, 29 September 2008). So far from being exceptionally dynamic, American industry seems strangely comatose - an appearance dramatised by the collapse of the American automobile industry, the bankruptcy of General Motors and Chrysler and the desertification of Detroit. Only the computer and information-technology industries and medical and biological research seem competitive by the standards of China, the rest of east Asia and even the more dynamic countries in Europe.

The American propensity to compare the country’s performance favourably with everyone else has reasserted itself, however, more quickly than the fortunes of General Motors. The troubles of European economies, highlighted by the judgments of New York ratings-agencies and exacerbated by New York bond-traders, have offered an enjoyable opportunity for American Schadenfreude. The fact that the dollar has recovered some of its parity against the euro has allowed many to embrace the illusion that the United States’s economic problems are over.

For the present, the Barack Obama administration’s focus in economic policy is on its rather ambitious attempts to reform (or rather to re-regulate) the financial system. This is necessary, important and - given the resistance of Wall Street - difficult, even politically hazardous. To reform Wall Street, clearly, is a necessary element in a political strategy to undo the damage that has been done. It is not, however, a sufficient one.

A lost generation

Paul Volcker, a former chairman of the Federal Reserve, makes this point in a timely and persuasive fashion (see “’The Time We Have Is Growing Short’”, New York Review of Books, 24 June 2010). Volcker is theoretically an adviser to President Obama but appears from a distance to have been blindsided by the more ancien régime of the president’s advisers (such as Larry Summers and the treasury secretary, Timothy Geithner; the latter a protégé of the arch-deregulator, Alan Greenspan, who predictably took advantage of the G20 meeting in Canada to patronise his European colleagues).

Volcker praises the administration’s proposals for financial reform. But he insists that the critical policy issues facing the United States “go way beyond the technicalities of law and regulation of financial authority”. The time, he says, is growing short for recognising this and for taking the necessary larger view:

“Restoring our fiscal position, dealing with Social Security and health care obligations in a responsible way, sorting out a reasonable approach towards limiting carbon omissions, and producing domestic energy without unacceptable environmental risks all take time. We’d better get started. That will require a greater sense of common purpose and political consensus than has been evidence in Washington or the country at large.”

He is right. And to this list of urgent priorities - each of which is either flatly denied or dangerously minimised by the Republicans - it is surely time to add another. That is, to reverse the trend identified by Robert Reich and restore what has always been an integral apart of the motive force of American society: a conscious political will to restore equality of opportunity (see “The next big issue: inequality in America”, 12 September 2006).

The much trumpeted research successes and highly paid professors at a couple of dozen private American universities (including a handful of well-endowed public institutions) conceal the crisis in public higher education. The most recent figures show that while a higher proportion than ever before of Americans start university courses (more than 70%), a lower-than-ever proportion (roughly 30%) graduate.

David Leonhardt comments: “Over the last few decades, the number of teenagers who enroll in college has actually been rising fairly steadily. But graduation rates have fallen. Less than a third of all students who enroll in community colleges with the intention of getting a two-year degree - a degree leading to jobs in nursing, auto repair, preschool education - ever do so at any college, statistics suggest. The United States still leads the world in getting students to start college, notes Lawrence Katz, co-author of a recent history of education. But we no longer lead in what really matters: educational attainment” (see “Students of the Great Recession”, New York Times, 3 May 2010).

A similar process has long been growing in secondary education. For a time it was argued that the relatively poor performance of American college students (in all but the best private institution) was due to the high proportion of immigrants’ children. Again, research suggests it may have more to do with the poor quality of the average public secondary school.

The weakness of American education and especially American scientific education has long been concealed by the ability to attract gifted scholars and graduate students from China, the Indian sub-continent and western Europe. That process is getting hard because of the irrationality of the Patriot Act, which makes it harder for what Rudyard Kipling (in his American period...) called “lesser breeds” to get visas to study and work in the United States.

This is not just a fairness issue. It also directly affects the prospects of the American economy becoming more competitive.

A political choice

Americans have been slow to recognise that their country, long dedicated to the ideal of equality, is becoming a class society that in many ways resembles the inequalities of 19th-century European society, without the political regulating mechanism of class-based socialist and Labour parties.

Political logic might dictate that as the Republican Party is increasingly identified with the interests and the attitudes of the “haves”, the Democratic Party ought to see its future as the representative of the “have-nots”. Some even supposed that President Obama might be planning to lead the Democrats in that direction.

It has not happened. Obama promised a massive reform of the grotesquely expensive, wasteful and unjust healthcare system. With great difficulty, he succeeded in persuading Congress to pass a substantially weathered down, though still well worth having, version of his original plan.

In other respects, his administration has been surprisingly conservative. In part, it is now clear, this reflects his own personal instincts and attitudes. In part, it reflects political “realities”, in the sense that even modest reforms are greeted by much of the American media and therefore by a surprisingly large proportion of the voters as dangerous threats to the American constitution and way of life. Obama is nothing if not politically cautious, and while his political skills are impressive in some respects (for example, his remarkable gifts as an orator), it is clear that, in is first term, he will not achieve the substantial reforms won by a Franklin Roosevelt or a Lyndon Johnson.

That is why the outcome of the mid-term elections due in November 2010 is so vitally important, and so hard to predict. 4 July has come and gone. Traditionally, there is a political and electoral truce from Independence Day until Labor Day at the beginning of September, leaving two months for the electoral season. There are signs that that tradition is being ignored this year, partly because the mid-term prospects are at once so important and so hard to predict.

If the Democrats survive the 2010 elections without major losses, it may be that Barack Obama will move relatively boldly to tackle the problem Paul Volcker has identified. If the turbulent political waters reinforce the president’s instinct for caution, his own prospects of winning a second term must be in doubt.

In a future column, I will try to read the mid-term runes. Already, it is clear that the United States is fast approaching a exceptional set of political decisions that will have lasting consequences for its society.

About the author

Godfrey Hodgson was director of the Reuters' Foundation Programme at Oxford University, and before that the Observer's correspondent in the United States and foreign editor of the Independent. Among his books is The Myth of American Exceptionalism (Yale University Press, 2009)

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